VZCZCXYZ0001
RR RUEHWEB

DE RUEHEG #0486/01 0711224
ZNR UUUUU ZZH
R 111224Z MAR 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 8492
INFO RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS CAIRO 000486 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA 
 
E.O. 12958: N/A 
TAGS: ECON EPET PGOV EG
SUBJECT: PUBLIC FEARS OVER DIESEL, GASOLINE SHORTAGES 
 
REF: 06 CAIRO 4596 
 
Sensitive but unclassified.  Please protect accordingly. 
 
------- 
Summary 
------- 
 
¶1. (SBU) Recent reported shortages of diesel fuel and 
low-grade gasoline throughout Egypt are prompting press and 
public speculation over a looming fuel crisis, although the 
GOE has assured the public that no such emergency is 
impending.  Shortages of low-grade gasoline are likely a 
function of the GOE-strategy to wean consumers off of the 
most-highly-subsidized 80 octane fuel and onto more 
expensive, higher grades, whereas the pressures on the supply 
of diesel to the market could stem from multiple factors, 
including delayed imports and hoarding caused by rumors of 
imminent price increases.  End summary. 
 
------------------- 
Worries over Supply 
------------------- 
 
¶2. (SBU) Stories of price hikes and shortages of gasoline and 
diesel fuel are reverberating in the Egyptian press and 
public; however, the GOE has issued assurances that no fuel 
crisis is looming.  Press reports say shortages of certain 
grades of Egypt's highly-subsidized gasoline and diesel fuel 
are widespread in the governorates of Fayoum, Beni Suef, and 
Assiut (south of Cairo), and have been compounded by worries 
over imminent price increases at the pumps.  Some analysts 
worry that supply shortages of diesel, coupled with increased 
prices on the black market, could evoke a highly-negative 
public reaction.  They argue that given the large number of 
lower-income Egyptians who rely on diesel-powered minibus 
taxis for their daily transportation, and the primacy of road 
haulage for cargo transport in Egypt, a fuel shortage will 
only exacerbate the growing general public discontent over 
rising food prices. 
 
¶3. (SBU) Although Egypt's retail gasoline and diesel prices 
are officially fixed, some trucking company operators have 
told us that shortages have pushed the black market cost of 
diesel, which normally sells for LE .75/liter (USD .14), to 
between LE 1/liter and LE 1.25/liter (USD .18 - .23) in a 
number of areas outside of the capital.  An official from the 
parastatal Egyptian General Petroleum Company (EGPC) 
countered that the GOE has not set a date for any potential 
future price increases and that any diesel supply issues are 
a function of hoarding fueled by rumors. However, Egypt's 
publicly-acknowledged plan to reduce the fiscal burden of 
fuel subsidies, which gained steam in 2006, is ongoing, and 
speculation is rife on when and how the GOE will make its 
next move. 
 
¶4. (SBU) Aside from doubling of the price of low-grade fuel 
oil (known as "mazut") in early 2007, Egypt last increased 
fuel prices in July 2006, when it boosted the prices of 90 
octane gasoline, diesel, fuel oil, and kerosene (reftel).  80 
octane gasoline, which is used mainly in poorer areas, was 
unaffected.  At the time, the increases took a LE 3.5 billion 
(USD 642 million) chunk out of Egypt's overall fuel subsidy 
bill, which analysts estimated in 2007 as LE 40 billion (USD 
7.3 billion) but have increased to around the LE 60 billion 
(USD 11 billion) mark this year. 
 
------------------ 
Why the Shortages? 
------------------ 
 
¶5. (SBU) Private sector industry officials tell us that the 
shortages of low-grade 80 octane gasoline are part of the 
GOE's strategy to reduce its fuel subsidy burden without 
explicitly raising gas prices by forcing consumers to move to 
the more expensive 90, 92, and 95 octane grades.  Contacts in 
Alexandria tell us that 80 octane gasoline has been nearly 
non-existent there for months, and gas station owners in 
Fayoum report not having received shipments of 80 octane for 
several weeks. 
 
¶6. (SBU) Shortages of diesel fuel have the greater potential 
impact on economy and the consumer, and some retailers report 
that shipments of diesel from EGPC have reduced in recent 
months and are falling well below demand.  One station owner 
reported that his average turnover had been 25,000 
liters/day; however, in the last four weeks EGPC only 
supplied him with 11,000 liters every two days.  Similar 
stories are being reported throughout Egypt.  Rumors 
regarding imminent GOE price increases, which are not 
supported by GOE statements, appear to be prompting hoarding 
and boosting black market prices.  Some spill-over effects 
are already being seen in the trucking and transport 
businesses, with some company owners increasing haulage and 
passenger rates. 
 
¶7. (SBU) A former EGPC official told us that Egypt is now 
more reliant on imports of refined products than previously, 
and that any delays in fuel shipment arrivals could pinch the 
supply.  We are not aware of any specific shipment delays, 
nor have we heard reports of any extraordinary circumstances 
at Egypt's refineries in recent weeks.  The press has quoted 
some academic commentators as saying that the GOE is 
deliberately squeezing supply in the short term to test 
potential public reactions to a new round of official price 
increases.  Several contacts suggest that global diesel 
prices have increased the scale of the historical smuggling 
of Egyptian diesel by Greek and Cypriot bunker ships at the 
ports of Alexandria, Damietta, and Port Said, thereby 
restricting supply to the local market.  Egyptian diesel can 
apparently fetch up to four times its domestic retail price 
at the ports. 
 
------- 
Comment 
------- 
 
¶8. (SBU) While rumors of an imminent increase in the price of 
diesel might have a measurable impact on stocks due to panic 
buying, the extent of the reduced supply to retailers as 
reported by gas station owners would indicate a more 
complicated situation.  It is unclear at present what is 
impinging the supply, and how long it will last, but the 
likely price hikes (and gouging) by minibus taxi drivers and 
other road transport companies will add to the souring public 
mood over increasing costs of living. 
RICCIARDONE